KUALA LUMPUR: Nestle (Malaysia) Bhd expects strong demand for its products to continue in the future, boosted by new product launches and the lifting of lockdown measures in the third quarter (Q3) of 2021.
CGS-CIMB Research said this is mainly in the beverages and plant-based food products, which the company foresees many opportunities.
"While it expects margin pressure from ongoing commodity headwinds, we expect Nestle to mitigate this impact ongoing hedging activities, cost optimisation strategies and selling price hikes on a more gradual basis.
"We also expect Nestle to incur lower Covid-19-related costs going forward," CGS-CIMB Research said in a note today.
Touching on earnings, Nestle's fourth quarter (Q4) 2021 net profit came in at RM116.7 million, lower by 10.1 per cent year-on-year (YoY), after adjusting for one-off gains of RM4.6 million, mainly provisioning and write-offs of inventories and personal protective equipment (PPE) disposal gain.
This brought FY21 core net profit to RM575 million, which is 2.9 per cent higher YoY, but below expectations at 94 per cent of both CGS-CIMB Research and Bloomberg consensus' FY21 estimates.
"We attribute the earnings miss in Q4 2021 to weaker-than-expected local sales and higher-than-expected operating costs, inclusive of Covid-19-related costs.
"Nestle also declared a final dividend per share (DPS) of 102 sen, bringing FY21 DPS to 242 sen, which was within expectations," the research firm said.
CGS-CIMB Research reiterates Hold and lowers Nestle's FY22-23F earnings per share (EPS) to account for higher input costs while introducing FY24 EPS estimates.
Accordingly, the target price is lowered to RM135.00.
"We keep our Hold call as we believe Nestle's valuations will be supported by the defensive nature of its business, which is consumer staples, strong global brand name, and product innovations," CGS-CIMB Research said.
